Prices at gas pump ticking up ahead of Memorial Day travel

On average, drivers are paying $2.88 a gallon at the gas pump. Gas prices are expected to continue rising because of high oil prices.

ByRon Scherer, Staff writerApril 29, 2010

Gas prices have been creeping higher again this spring. Drivers have been feeling it at the gas pump, and can expect to continue to see prices rise as the summer approaches.

Arko Datta/Reuters

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New York — It seems like a rite of spring: The price of oil and gasoline rises in the weeks leading up to the Memorial Day weekend.

This spring appears no different. On Thursday, on the New York Mercantile Exchange, the price of oil rose by $1.95 per barrel, ending the day at $85.17. This is close to the highest level in at least a year.

According to AAA, gas prices, which have been inching up in recent weeks, hit $2.877 a gallon on Thursday. That price is up 82 cents a gallon from a year ago and is 8 cents higher than a month ago.

A variety of factors appeared to be driving the higher prices, energy analysts said. On Wednesday, the Federal Reserve, in its analysis of the economy, said it saw some modest signs of growth. The Fed opted to keep interest rates at the same low level – close to zero percent.

“If you have the economy getting better and low interest rates, that’s a bullish scenario for oil,” says Phil Flynn, senior market analyst at PFGBest Research in Chicago. “If the economy is better, demand for oil is better.”

On Friday, the government will issue a key report on the economy – a preliminary estimate for gross domestic product in the first quarter.

According to Mr. Flynn, oil markets were somewhat unsettled on Thursday after reports surfaced that last week an Iranian jet had buzzed a US aircraft carrier. However, the Pentagon played down the incident.

The rising price of oil comes against the backdrop of the growing oil spill in the Gulf of Mexico off the Louisiana coast. But the recent increase in price was not related to the spill, Flynn says, because the lost oil was coming from an exploratory well. “The market was not counting on oil from this well,” he says.

Over the longer term, however, the blowout in the Gulf might have some impact. For example, on Thursday, Sen. Bill Nelson (D) of Florida filed legislation that would prohibit the Interior Department from opening up new offshore waters for drilling and seismic testing.

Also, the oil spill could have ramifications for America’s oil supply if the US decides to shut down shipping lanes, including the Louisiana Offshore Oil Port. LOOP handles about 13 percent of US petroleum imports.

“If they do close the LOOP, not to mention the social fallout from an oil spill that could be size of the Exxon Valdez, that could become a factor in the oil markets,” says Mike Fitzpatrick, an energy analyst at MF Global, a commodities broker in New York.

For now, however, the supply of oil appears to be good. Crude-oil supplies are running above the upper level of the average range for this time of year, according to data released last week by the Energy Information Administration (EIA).

With plenty of oil around, Mr. Fitzpatrick is not bullish on the price of oil, despite the recent run-up. The debt crisis in Europeinvolving Greece may be negative for world economic growth, he believes. He reasons that as Greece, Portugal, and maybe even Spain reduce their government spending and perhaps raise taxes, European growth will slow.

“We could be entering a deflationary spiral,” he says, referring to a period when prices drop. “If that happens, the price of oil could go back to $70 to $75 a barrel.”

But with the price of oil currently at $85 a barrel, the implication is for higher gasoline prices, Flynn says. “Gasoline is going up go up a few more pennies in the next few weeks,” he says. “Gasoline prices are on target to reach a top around Memorial Day.”

On April 6, the EIA predicted that gasoline prices would average $2.92 a gallon during the summer driving season.